Passive income can be as plain as buying shares at Blue-Chip FTSE 100 Companies in shares and shares ISA by sitting and then letting dividends.

To show how it works in detail, I will utilize the example of an investor who wants to aim 1000 GBP each month (average) in passive income.

How dividends are calculated

Not all shares pay dividends, even if they have in the past. The company decides whether to announce a dividend, and if so, it will pay this amount to the action to each person who had shares on a specific day.

These dividends are paid as long as someone has a share decades After purchasing participation.

Dividends are given as the amount per share, but as the share prices differ, it can be misleading for comparison. So investors talk about dividend profitability – how much they earn annually in dividends as a percentage of what they paid for the shares.

This means that two investors can earn different yields on the same action if they bought at different prices (in fact I earn different yields I In the same share in some cases where I bought many times at different prices).

How much passive income can be obtained annually, so it depends on two factors: How many It is invested and hours invested what.

1000 pounds a month requires that much

To simplify, let me utilize an example of 5%. This is above the current average FTSE 100 3.6%, but below what I earn on some FTSE 100 actions Legal and general AND M & G (LSE: MNG).

1000 pounds a month is 12,000 pounds a year. With 5% profitability, it would require an invested 240,000 pounds (far above the annual contribution of ISA shares and shares).

But – and it is vital – it doesn’t have to be now. For example, the patient’s investor can drip money with feeding on ISA over time, initially reinvest dividends to build a value of up to 240,000 pounds. Starting from scratch and investing 200 pounds a week, this approach will last less than 16 years.

Building an appropriate income portfolio

As I said, I have M&G shares and I see it as an option that investors should consider passive income. The asset management market is huge and will probably remain so in the long run.

Having a enormous addressable market can be both good and bad. It is good because it means that M&G can find customers – it has millions. Large sums include average even modest fees can add up. This helps M&G generate a enormous surplus of generating cash, which in turn finances a generous dividend.

The efficiency is currently 9.2%, and M&G is aimed at maintaining or increasing the payment to the share per year (although this is never guaranteed).

But the enormous market can be bad because it attracts competition-rivals are a risk of M&G profitability. Despite this, I see a forceful brand of the company as a competitive advantage.

First movement

To start introducing this passive income plan, the investor needs a way to place money on the stock exchange. That is why comparing many ISA shares and shares provides me as an obvious first step.